A trust is a fiduciary tool that allows for assets to be held by a third party, known as a trustee, for a trustor on behalf of a single or group of beneficiaries. Trusts are often used as part of estate planning. There are many different types of trusts that can be established for various purposes and are generally governed by the law of the state in which they are created. Though each trust has its own benefits, overall trusts are desirable because they can save time and money by avoiding probate while protecting your property and privacy.
Benefits of a trust
There are many types of trusts. Each trust has its own benefits and may differ depending on the state in which the trust is created. Overall, there are several benefits to trusts that make them an attractive estate planning tool.
These benefits include:
- Assets are transferred more quickly to beneficiaries
- Some trusts result in lower taxes than if the assets had passed through a conventional will
- Assets in the trust may be able to pass outside of probate, saving time and money
- Unlike assets passed through probate, trust details are private
Types of trusts
There are many different types of trusts. Each type has a specific purpose and is controlled by the laws of the state in which it was created. The most common types include:
- Marital trust: this type of trust benefits the surviving spouse of the trustor
- Bypass or “credit shelter” trust: a credit shelter trust allows the assets to bypass a surviving spouse’s estate in order to claim tax benefits
- Testamentary trust: created through the will of a trustor and subject to probate
- Irrevocable life insurance trust: this type of trust allows life insurance payouts to skip the decedent’s taxable estate in order to benefit the beneficiaries
- Charitable lead trust: allows you to split your assets between a charity and your beneficiaries
- Charitable remainder trust: allows you to receive a steady income for a certain period of time and, at the conclusion of the time period, the remainder of the trust to charity
- Generation-skipping trust: this trust allows assets to skip a generation and be given directly to your grandchildren, without tax penalties
- Qualified terminable interest property trust: provides income for a surviving spouse until his or her death, at which time the assets transfer to the remaining trust beneficiaries
- Grantor retained annuity trust: designed for quickly appreciating assets
Trusts can provide peace of mind for the trustor while allowing for customized control of the distribution of his or her assets. Trusts can be used during or outside of estate planning to save time and money by avoiding probate as well as protecting your assets and the privacy of those involved in the trust.